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:: Volume 33, Issue 114 (quarterly journal of economic research and policies 2025) ::
qjerp 2025, 33(114): 164-218 Back to browse issues page
Examining the Central Bank's Asymmetric Preferences with Respect to Asset Price Volatility
Majid Habibian Naghibi , Mohammad Javad Sedighi Pashaki * , Masoud Salehi Razveh
Edalet University , mj.sedighi1366@gmail.com
Abstract:   (1236 Views)
This study investigates the asymmetric preferences of the Central Bank of Iran in responding to asset price fluctuations and the extent to which these fluctuations influence monetary policy decisions. Given the significant volatility of the stock market index in 2020 and subsequent years, the primary objective is to examine whether the Central Bank incorporates asset price changes into its monetary policy decisions and, if so, how its behavior differs under inflationary and recessionary conditions. To this end, an extended New Keynesian structural model is employed, in which the asset price index is incorporated as a key variable. To estimate the Central Bank’s reaction function, threshold values for inflation and the output gap are first obtained using the method proposed by Caner and Hansen (2004). The Bank’s behavior in response to asset price fluctuations is then evaluated using the Generalized Method of Moments (GMM). The estimation results reveal that, during inflationary periods, the Central Bank’s primary focus is on controlling inflation, with a reduced response to the output gap. In recessionary periods, the Bank’s response to the output gap increases, although it remains limited, reflecting the constraints on monetary policy in such conditions. Moreover, the Central Bank does not intervene in the asset price index during boom periods but provides limited support to the stock market during recessions. Given the strong link between Iran’s capital market and the money market- through mechanisms such as stock purchase loans and bank-managed investment funds-it is recommended that the Central Bank consider asset price fluctuations when formulating monetary policy.
Keywords: Monetary policy, Stock price index, Financial crisis, Output gap, Inflation
Full-Text [PDF 936 kb]   (431 Downloads)    
Type of Study: Research | Subject: Special
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Habibian Naghibi M, Sedighi Pashaki M J, Salehi Razveh M. Examining the Central Bank's Asymmetric Preferences with Respect to Asset Price Volatility. qjerp 2025; 33 (114) :164-218
URL: http://qjerp.ir/article-1-3699-en.html


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This work is licensed under a Creative Commons Attribution ۴.۰ International License (CC BY ۴.۰)
Volume 33, Issue 114 (quarterly journal of economic research and policies 2025) Back to browse issues page
فصلنامه پژوهشها و سیاستهای اقتصادی Journal of Economic Research and Policies
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